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IP/Entertainment Case Law Updates

Arista Records LLC, et al. v. Lime Group LLC, et al., USDC S.D. New York

Thirteen record companies who filed a copyright infringement suit against the operators of a peer-to-peer network, Lime Wire, obtained dismissal of Lime Wire’s antitrust counter-claims. Lime Wire filed antitrust counter-claims against the record companies alleging that the record companies conspired to foreclose competition in and monopolize the market for the digital distribution within the United States of copyrighted music over the Internet.

Lime Wire alleged, among other things, that the record companies used their joint ventures, MusicNet and pressplay, to effect a price-fixing arrangement among horizontal competitors, that they restrained distribution by coercing peer-to-peer networks to accept offers from iMesh and that the record companies refused to license their copyrighted music to Lime Wire unless Lime Wire licensed a hash-based filtering system from a third-party, even though Lime Wire already had developed its own hash-based filtering system.

The court found that Lime Wire lacked antitrust standing with respect to its claims of price-fixing and restraint of distribution because it had not pled that it actually sought licenses from the record companies. Accordingly, Lime Wire failed to demonstrate the requisite antitrust injury as to these claims. The court additionally found that although Lime Wire alleged sufficient facts to establish antitrust standing to challenge the record companies’ mandatory licensing scheme for distributors who employed hash-based filtering technology, its claim for violation of section 1 of the Sherman Act should be dismissed because Lime Wire failed to sufficiently plead a “meeting of the minds” by the record companies to thwart competition in the digital distribution of music business.

The court also dismissed Lime Wire’s claims under section 2 of the Sherman Act, which were premised on a theory that all thirteen record companies can be held collectively liable as a single monopolist or potential monopolist under a “shared monopoly theory.” The court noted that the Second Circuit has rejected the shared monopoly theory in the context of Sherman Act § 2 claims alleging attempted monopolization and found that, even if claims for conspiracy to form shared monopolies are viable, Lime Wire did not allege in its complaint that the record companies sought to unite in a single monopolistic entity or to allocate shares of the relevant market. Moreover, Lime Wire did not sufficiently plead the existence of a conspiracy. However, the court dismissed the state law antitrust claims without prejudice to Lime Wire refiling these claims in state court.

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